A Review of RobinHood App

There’s a brilliant new iOS app to help you manage your money, and it’s known as RobinHood. Their name has been making the rounds in the financial press, and I’ve been meaning to give them a test run for a long time. This weekend I finally downloaded the app, did a quick run and now, I’m bringing you the review.

Basic Description

The app is the brainchild of a new brokerage firm that lets you buy and trade stocks on the major US markets with $0 in commissions. Yup. Free. You get a beautiful display of your account balance, watchlisted stocks and current holdings, as well as an easy summary of market movements and opening and closing times.

Pros

1. I signed up on their website, downloaded the app, linked my bank account and deposited $100 all within ten minutes. The app has a password and a PIN for extra security, and unlike most mobile trading platforms, their user interface was radically simple and easy to use.

2. The app summarizes market movements, gives you a watch list and an overview of your holdings, and changes to color codes based on if the market is open or closed. It’s well presented, trading is easy and keeping track is intuitive. The whole thing is nifty.

3. It’s easy to get a summary and place a trade. And yes, it’s entirely free. No commissions whatsoever. Let me tell you the impact of that, especially when you’re investing in the hundreds. So, I bought 5 shares of a company called ENOVA just to test the app out. It was trading at $18, so the 5 came up to $90, with $0 commission, leaving me $10 in cash. Soon the stock was up to $19.41 leading to a bit over 2% gain.

Compare that to what would have happened in my normal trading. I would have paid $7 commission in addition to the $90 cost of the stock bringing my total cost to $97 or $19.40 per share. I would have started out on a -8% return and would just now close to break even. For a small or frequent investor, that $7 to $10 commission on each trade is significant to your cost basis and affects your return. So by saving me money, RobinHood has already made me money.

Here’s another benefit for me. I stopped doing smaller trades with my normal brokerage account, choosing to route those either through Vanguard, or finding Direct Purchase opportunities which often don’t charge a commission fee either. The drawback of the former is that your ability to buy exactly what you want is constrained, (which can be helpful if you’re starting out but bums if you have better knowledge) and with the latter, only a relatively few companies have direct purchase programs, and those tend to be blue chip, stable and therefore slower growing companies. With Robin Hood,I get to pick exactly the stock I want, and hold it for as long as I want, absolutely free. That’s cracking.

The Cons

There are a few cons to RobinHood. The first is the inability to set up a stop loss which I use often to preempt a negative move on a stock. You can only trade in one direction, so you have to always watch your holdings and be ready to sell if they dive. This also means you can’t do limit orders, and any variation of an order where you decide the strike price at which to buy or sell.

You also cannot short a stock. Shorting is a technique I used to use more often, but haven’t as much since I’ve been doing a lot more holding than trading. But if I’m not paying any commissions, I sort of have a built in incentive to trade more actively, which might make shorts rather useful. lt bums that we’re unable to do that.

The third is the lack of margin trades. You can’t do options, can’t use leverage, can’t do anything overly complicated. It’s maybe a good thing since 25% of RobinHood users are first time traders who may need to avoid complicated trades, but to lure users from other established brokers, they need those options. I hope they’re introduced soon.

Finally, there also needs to be a way to aggregate your holdings from other places on one viewable dashboard. Or port them entirely over to RobinHood. But again, maybe it’s early in the game for these outlaws.

Overall, I love the app and service. For an experienced investor, it’s a little wanting but for someone new , I think few services could be better. They’ve raised enough funding to stay open for a long time while they have enough users to be a viable business so there’s little worry on that end. And your funds are insured to the tune of $500,000 which should satisfy even the most cash rich of users.

I’m eager to see how far they go.

(NB) The app is exclusively on iOS which isn’t a con to me cos Androiders don’t deserve nice things. Okay, I’m kidding. They do have an Android app coming later this year. Don’t cry.

(NBB) A lot of people make moral arguments about allowing us inexperienced millenials to risk our money on the stock market. I say whatevs. If you’re old enough to slay jaggerbombs, you’re old enough to lose money on the market. It’s a rite of passage. If we don’t do it now that we’re young and free, when will we? Besides,nothing inspires you to learn how to invest more than blowing $500 on a failed stock. That said, invest in your education before you invest your money.